A Prescription for Troubled I.B.M.

By JOHN MARKOFF

Published: December 10, 1989

By all accounts, the International Business Machines Corporation is in trouble. Drastic measures are now in order if it is to keep its dominance in computers. Some would even argue that the time has finally arrived for it to drop its stubborn preoccupation with the mainframe, maybe even spin off its minicomputers.

Its ailing condition has become an obsession on Wall Street. I.B.M.'s earnings have been sliding for several years, falling to $5.8 billion last year, from $6.58 billion in 1984. The stock, once the darling of Wall Street and a symbol of stability, has never recovered from the stock market crash of 1987. It closed Friday at 96 7/8, down from a high of 175 7/8 just before the crash.

The company's efforts to reverse its fortunes have been greeted unenthusiastically. Just last week, I.B.M.'s chairman, John F. Akers, told a group of analysts that the company planned to induce 10,000 workers to leave the company, would take a $2.3 billion special charge to improve the company's finances and would spend up to $4 billion to buy back its stock. ''We are fully prepared to take further actions if dictated by economic or business conditions,'' he said, suggesting that things could get worse.

When one I.B.M. watcher pointedly asked Mr. Akers if the company's senior management were not the real culprit for its financial malaise, the chief executive bristled. ''I believe that a management team is measured by its ability to deal with the problems, and I believe we are identifying the problems and dealing with them,'' he shot back.

Many financial analysts called for far more draconian measures: staff cuts of 30,000, or even 50,000 employees, among other things.

But technology experts have come to their own disturbing consensus. At a time of increasing global competition that is driven by technological developments, I.B.M. has risked its long-term position, preoccupied with meeting Wall Street's demands for quarterly results. They think I.B.M. can preserve its standing as the nation's supreme high-tech company and challenge the Japanese only by concentrating on innovation.

At the heart of I.B.M.'s dilemma is its seeming inability to pursue the most promising new technologies and make a clean break with technologies of the 1960's and 1970's, like mainframes, which are still the core of its business. It is this pursuit of new technology that has permitted companies scarcely more than a decade old like Apple or Compaq, to become multibillion-dollar enterprises, sometimes capitalizing on developments that I.B.M. had access to first.

First, I.B.M. should drop its ''thousand cuts'' strategy for gradually shrinking its work force in the United States. I.B.M. chose this path rather than a layoff strategy in an effort to preserve morale. But recently departing executives say the strategy has backfired. Some of the company's best and brightest employees have accepted the inducements, and left. And many workers who remain are paralyzed by fear that voluntary actions might eventually be replaced by the involuntary cuts.

Rather than relying on random and voluntary resignations, I.B.M. would be smarter to slim down rationally, by spinning off unpromising product lines, like minicomputers. Minimize the Mainframe

I.B.M. should confront the reality that the era of mainframe computing is ending. Less expensive desktop computers may not eliminate mainframes any time soon, but they are dramatically slowing their growth. The expanded horsepower of microprocessors has enabled personal computers and work stations to handle applications from payroll processing to exotic document processing that were once possible only with mainframes. The company, therefore, would be smart to embrace the philosophy proposed several years ago by John Sculley, the chairman of Apple Computer Inc., who says he views mainframes mainly as storage peripherals, rather than power sources, for personal computers.

But I.B.M. faces a tremendous force of inertia in reorienting itself around desktop computers. As much as 50 percent of its revenues and 65 percent of its profits worldwide flow from its mainframe product lines. Spin Off the Mini

The company should spin off its AS/400 line and other minicomputer systems. Like mainframes, minicomputers are a dying breed, highly vulnerable to the cheap processing power of personal computers and work stations. But unlike the mainframe, which will continue to serve a vital role as a speedy librarian handling data storage and special tasks, minicomputers are headed for extinction. In fact, jettisoning the product line could slash more than $4 billion in expenses for the company without any loss in growth.

Take the AS/400 line. When introduced in 1988, the line enjoyed initial success by encouraging I.B.M.'s existing minicomputer customers to upgrade, but the business is now exhausted. And the introduction of ever more powerful new desktop computers will mean increasingly rough sledding for the line in the 1990's. Stress the Desktop